King Salman makes first major policy speech

In his first major policy speech since acceding to the throne in January, the king, Salman bin Abdel‑Aziz al‑Saud, has sought to stress his commitment to the country's prosperity, development and stability. However, there was virtually nothing in the speech regarding political reform, and very little on economic reform. As a result, there is a risk that his previously stated wish to ensure "continuity" during his reign could in fact morph into outright policy stasis.

In part, of course, the necessarily wide-ranging nature of the speech precluded going into any great policy details. However, with the oil price slumping, the ensuing rapidly deteriorating fiscal account (which we forecast will return its widest deficit since the 1980s this year) would have been expected to warrant some response. However, instead King Salman repeated the platitudes of his predecessor, arguing that the government would be seeking to mitigate the impact of falling oil prices on the country's development. Yet the country's 2015 budget, although slightly larger than the 2014 budget, still included swingeing cuts to capital spending, and the Saudis are now almost alone among their oil-rich Gulf peers in shirking major subsidy reform—an approach that has raised serious and growing concerns about the sustainability of the state finances.

Equally, the king barely referred to the government's current, closely watched policy of maintaining oil production levels despite the weak oil price. The recent rally in oil prices has begun to reverse, but as yet there has been no deviation from this line, and the king gave no hint of any upcoming shift. (Certainly, the prospect of unilateral Saudi action is declining, ahead of OPEC's next scheduled meeting in June.) Instead, he merely stated that oil and gas exploration would persist—a comment that appears to partially contradict reports that the state oil company, Saudi Aramco, has decided to suspend exploration in the Red Sea.

King stresses businesspeople's duties

Nevertheless, he did make the point that the slump in oil prices re-emphasises the importance of economic diversification, with the king pointing out that future growth would need to rely on "a number of foundations". Achieving this goal will require a host of reforms to the business environment and the active participation of the private sector. In this regard, the king was keen to court businesspeople, telling them that they are the "fabric of this country". However, he was also eager to stress their duties too, arguing that Saudi Arabia "awaits much from you", including in the area of employment. This latter comment is almost certainly a reference to the government's Saudiisation ambitions (the long-standing programme of replacing foreign workers with Saudi nationals), which has arguably become more urgent as lower oil prices leave the government with fewer resources to hire locals. Plans to raise Saudiisation quotas for a host of sectors are set to be rolled out on April 20th, and, although Saudi businesses have been campaigning for the latest measures to be postponed, the king's comments appear to indicate that the reform will be going ahead.

Undoubtedly the problem of youth unemployment is a key political issue in the kingdom (it is currently estimated at around 29%), and thus pressure is growing on business to alleviate the problem. However, finding suitably skilled graduates has proven challenging, and, with this in mind, the king stressed the importance of education, arguing that it "must meet the country's … job market requirements". He also pledged that the government's grant programme to pay for Saudi students studying abroad (introduced in 2011) would continue.

The problem of corruption is another incendiary issue within the country, and in his speech the king pledged to strengthen the country's monitoring bodies. He has arguably already made progress on this front, with the appointment of Khaled al‑Mohaisen as the new president of the National Anti-Corruption Commission (replacing the elderly Mohammed bin Abdullah al‑Shareef) on January 30th. He also placed an unusually large amount of pressure on the two new strategic councils, the Council for Political and Security Affairs and the Council for Economic Development (headed, respectively, by the deputy crown prince and interior minister, Prince Mohammed bin Nayef, and the king's son and new defence minister, Prince Mohammed bin Salman). He called on both councils to ensure the population's prosperity, warning that "we will not tolerate any complacency in this regard". The formation of the two councils—which replaced around a dozen more narrowly focused bodies—was one of the most important changes in the king's first cabinet reshuffle. By singling them out in his speech, it appears that they will garner a high profile in policymaking.

Political reform off the agenda

However, accountability will probably remain lacking, with no major political reforms of any kind announced by the king. The only hint of greater public participation in decision-making was evident in his comments to regional governors, who he said must be cognisant of the "importance of receiving and listening to citizens". Although hardly a rallying cry for the municipal elections (scheduled to take place later this year), it is worth noting that the elected local officials do have a consultative role with the appointed regional governors—and thus his comments can be viewed as an attempt to ensure that the newly elected officials are given a proper hearing.

Equally, in terms of social reforms, there was little encouragement for reformers to draw from the speech. Aside from a comment that there "will not be any discrimination between citizens and regions", he had nothing to say that might appease the country's restive Shia minority (who often complain of economic and political marginalisation), and nor did he show any signs of furthering his predecessor's reforms in the area of women's rights—which included appointing women to the Majlis al‑Shura (akin to a parliament) in January 2013 and giving women the right to vote and stand in municipal elections.

Stability remains the watchword

Instead, predictably, he sought to stress that stability was of the utmost importance, pronouncing that "we'll not allow anybody to tamper with our security and stability". Stressing the continued primacy of the country's "religious principles", he called on the media to avoid sowing division, adding that it "should be a means for strengthening national unity and boosting development". However, he had less to say about foreign policy—a field where Saudi Arabia has been unusually active in recent years—despite the fact that the country remains active in the air strikes in Syria (although its participation has waned slightly) and continues to funnel large sums to perceived friendly regimes, such as in Egypt and Bahrain.

These grants (including some US$5bn or so given to Egypt since mid‑2013) have contributed to the marked deterioration in the Saudi fiscal account in recent years, and may well be reined in amid the current period of lower oil prices. However, this is unlikely to be sufficient to repair the fiscal accounts, which will eventually require bolder decisions on more politically contentious public-sector wages and subsidies. However, there is a risk that a tightening fiscal policy, combined with the king's conservative political and social agenda, could prompt a backlash, seriously undermining the stability that Saudi Arabia's new ruler yearns for.